To clarify the accounting treatment of the additional liability resulting from an increase in the gratuity ceiling under AS-15/Ind AS-19, the ICAI has released a list of frequently asked questions (FAQs) (Employee Benefits).
It should be mentioned that the Payment of Gratuity (Amendment) Act 2018 increased/doubled the previous limit of Rs. 10 Lacs to a maximum of Rs. 20 Lacs in respect of gratuity payable. A retirement gratuity is due to an employee who has worked for the company for at least five years, however there are restrictions. Gratuity is paid upon retiring, leaving your job, becoming disabled due to an illness or accident, or passing away.
In regards to the accounting treatment of a rise in obligation on account of past service costs, the ICAI has said that the aforementioned accounting principles do not offer any exemptions or one-time relief. As a result, any increase in the liability due to a rise in the gratuity ceiling must be recorded as an expense in accordance with the requirements of the applicable applicable Standard.
ICAI Announcement dt. 14/05/2018: FAQs/ Clarification on Accounting Treatment of Enhanced Gratuity Ceiling (AS-15/ Ind AS-19)